'To Safeguard Homebuyers' Interests' : Supreme Court Issues Directions For CoC In Insolvency Cases Against Builders

The Supreme Court on Thursday (January 15) issued a set of directions regarding the functioning of the Committee of Creditors (CoC) under the Insolvency & Bankruptcy Code, noting that while the commercial wisdom of the CoC is paramount, such power must be exercised with responsibility, transparency and proper application of mind, particularly in real estate insolvencies where homebuyers' interests are deeply involved.

“While the commercial wisdom of the Committee of Creditors is paramount and is not ordinarily amenable to judicial review, the width of powers vested in the CoC carries with it a corresponding duty of responsibility. Any extraordinary or non-routine decision taken by the CoC must, therefore, be supported by cogent reasons duly recorded in writing.”, observed a bench of Justices JB Pardiwala and R Mahadevan, while issuing following directions with a view to advancing transparency, ensuring accountability, and safeguarding the interests of homebuyers:

"i) The Information Memorandum shall mandatorily disclose comprehensive and complete details of all allottees; and

ii) Where the Committee of Creditors, upon due consideration, finds it not viable to approve handover of possession in terms of Regulation 4E of the CIRP Regulations, it shall mandatorily record cogent and specific reasons in writing for such decision.

iii) Any recommendation for liquidation by the Committee of Creditors shall be accompanied by a reasoned justification recorded in writing, evidencing proper application of mind and due consideration of all viable alternatives, in consonance with the objective of the Code."

Background

The bench issued the aforesaid directions, while hearing a case, in which the Appellant-a homebuyers' association- approached the Supreme Court against the NCLAT decision dismissing its plea to intervene in the Corporate Insolvency Resolution Process (“CIRP”) against the Respondent- Corporate Debtor- at the pre-admission stage.

The Court upheld the NCLAT's decision to dismiss Appellant's plea for intervention at the pre-admission stage, as the plea for initiating the CIRP can only be filed by the individual flat owners as a financial creditor under Section 7 of the IBC. A homebuyer association, which don't have an independent status as a financial creditor, cannot seek intervention at the pre-admission stage, but can explore other options at the post-admission stage under the Code.

In this backdrop, the Court observed that even if an intervention application by a homebuyers' association is rejected at the pre-admission stage, the association is not left remediless and may pursue appropriate remedies before the CoC in accordance with the Code. The Court clarified that although the commercial wisdom of the CoC is immune from judicial scrutiny, any decision of the CoC that affects the rights and interests of homebuyers must be supported by cogent reasons and must emerge from a fair and transparent decision-making process.

Significance of the aforesaid directions 

The Court's direction that the Information Memorandum must contain complete details of all allottees was directly linked to the facts of the case, where nearly two-thirds of the flats had already been sold. The Court noted that without a clear picture of the number and identity of homebuyers, the project risked being treated as a mere distressed commercial asset rather than a residential development involving real end-users.

The direction ensures that resolution applicants and the CoC cannot evaluate viability or liquidation without accounting for the scale of homebuyer interests and the actual completion obligations.

The Court's further direction is that if the CoC rejects any request by homebuyers for possession or registration under Regulation 4E, it must record cogent reasons in writing.

An unreasoned refusal by the CoC could effectively deprive buyers of ready or near-ready homes while not explaining why completion or handover was commercially or legally unviable. The Court therefore insisted on transparency and accountability in decisions that directly affect the fate of occupied or near-occupied housing projects.

The most far-reaching direction required the CoC to provide a written, reasoned justification if it recommends liquidation, showing that all viable revival options were duly considered.

The Court emphasized that with construction almost complete and hundreds of families awaiting homes, liquidation would not merely dissolve a corporate entity but potentially convert a livable housing project into distressed land and unfinished structures. It said that the CoC must demonstrate why alternatives like project completion, third-party takeover, or structured resolution are not feasible before choosing liquidation.

Cause Title: ELEGNA CO-OP. HOUSING AND COMMERCIAL SOCIETY LTD. VERSUS EDELWEISS ASSET RECONSTRUCTION (and connected case)

Citation : 2026 LiveLaw (SC) 51

Click here to download judgment